Nigerian shareholders are in for a lean harvest, going by the weak first-quarter numbers presented so far by most of the banks, unless a miracle happens in the current and future quarters leading to the end of the 2014 financial year.
LEADERSHIP investigations reveal that banks are particularly facing a challenge in trying to deliver solid operating performance following recent developments within the regulatory environment, especially the 75 per cent cash reserve ratio (CRR) on public sector funds and 15 per cent on private sector funds.
The difficult operating environment in the banking industry has reflected in the books of the banks, according to the financial report of the banks released for the first quarter of the year on the Nigerian Stock Exchange (NSE).
All the quoted banks have released their financial report for the first quarter ended March 31, 2014, and their performance was not surprising to most financial analysts as the various numbers fell within the range of expectations.
The results, however, have mixed impacts as almost all the banks recorded positive and negative performance highlights, with the increase in the CRR, cut in commission on turnover (COT), among some recent policy measures weighing in on their earnings and profits.
Also, some of the banks reported decline in their customers' deposits, which could be as a result of the hike in CRR to 75 and 15 per cent for public and private sector deposits respectively. It means that for every N100 of deposit mobilised from government ministries, departments and agencies (MDAs), the bank must warehouse N75 at the CBN at nil interest rate.
Banks have continued to struggle to source for deposit from the private sector and individuals, through increasing interest rate of savings accounts and other facilities. In the last quarter of 2013, the public sector deposits dropped by about N1 trillion in the banks.
A look at some of the banks that released their results for the period under review: GT Bank and Zenith reported muted growth in gross earnings of 5.81 per cent and 8.45 per cent while profit after tax growth was minimal by 2.46 per cent and 1.15 per cent compared to the corresponding period of 2013.
There were some pockets of growth across Diamond, Stanbic IBTC and Sterling scorecards. Diamond's result was quite impressive in the first quarter as it showed a tremendous growth in key parameters. However, Fidelity underperformed relative to peers, as gross earnings dropped marginally by 1.5 per cent to N30.96 billion, while PBT and PAT declined 25 per cent and 20 per cent respectively as dismal performance of its non-interest items weighed down on the overall performance of the bank. Also, Skye Bank grossly underperformed in the period under review as the bank posted a 25 per cent drop in pretax profit as a result of higher impairment charges and operating expenses.
Skye bank has attributed the decline in its first quarter performance to various regulatory headwinds on the backdrop of monetary policy tightening with attendant impact on liquidity, cost, fees, and overall earnings.
According to a stockbroker, Mr Tunde Oyediran, the performance of banks in the first quarter was not impressive except for a few of them. "This could be attributed to the hike in the CRR and also spate of insecurity in the country, especially in the northern part of the country," he said.
Analysts at Cordros Capital Limited said that the monetary policy tightening has made it difficult for the banks to deliver impressive returns. They highlighted key drivers of earnings growth in 2014 for banks: stronger loan growth, lower funding costs, higher lending rates, an efficient asset and liability mix, stable increase of transaction volumes and stronger cost efficiency.
The performance of banking index on the NSE showed a negative return of year to date (YTD) of 9.63 per cent while the NSE ASI has a negative YTD return of 5.59 per cent.